Retail Accounting

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Stock Taking – Why are inventories important?

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We frequently encounter clients who only check their stock inventory once a year. In the retail market where stock turnover is high lack of stock take information will often mean the operator of the business is unaware of their true financial position. Here are four reasons why you should take regular stock takes:

1. Theft

Profit margins can rapidly be eroded if stock is being stolen by shoplifters or staff. Where margins are low and sales volumes are high regular stock takes are essential to make sure that stock is not being stolen. For example tobacco sales margins may be as low as 7 or 8 % in some markets and the theft of a carton of cigarettes by a staff member can easily wipe out the day’s profit for a small convenience store owner.

2. Accurate profit margins

Both cost and retail prices can vary over time. Stock can also be lost through damage or theft. Accurate profit margins on a product line or sales category group can only be established if stock levels have been counted at the start and end of a period. In extreme cases the owner may be unaware that their business is failing due to the actual profit margins being far lower than forecast.

3. Automated ordering

To benefit fully from automated ordering it is not good enough to rely only on the stock levels calculated by a Back Office System (BOS). The data in the system is often inaccurate due to incorrectly entered delivery data and failure to adjust for damaged and out of date goods. Taking regular physical stock takes and feeding this back into the BOS will help to ensure that automatic ordering does not lead to over or under stocking.

4. Statutory Requirements

In the case of fuel sales there are statutory requirements to record inventory levels and check for losses into the environment. For convenience goods there are no equivalent requirements however most accountancy regulations require inventory levels to be determined once a year for annual tax returns.

Recommendations

1. Make a physical stock take monthly or bi-monthly to allow accurate profit trends to be calculated and minimise theft. The use of hand held bar code scanners has made this easier and more accurate than in the past.

2. For high value low margin items (tobacco, lottery scratch cards etc.) consider checking on a more regular basis. For example lottery scratch card sales can be easily checked as the cards have a serial number. Checking that the difference in serial numbers is equal to the number of sales recorded in the POS for a shift, day, week etc is easy to do.

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Author: retailaccounting

CounterBooks is an online retail accounting management suite which is used by retailers across the world.

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